MANAGEMENT II

FINAL REVIEW OF CHAPTER 4

 LEARNING OUTCOMES

1. Understand the use of the

Balance Sheet by hospitality
managers
2. Identify items of assets,
liabilities, and owner’s equity
3. Prepare a Balance Sheet
 USES OF BALANCE SHEET

1. measures the financial status, value, and net

worth of a business as of a specific date.
2. assess a firm's liquidity, solvency, and ability to
make distributions to shareholders.
* Liquidity: ability to meet short-term debts
* Solvency: ability to meet long-term obligations.
 ASSETS

• Cash and Cash Equivalents

• Short-term Investment
• Receivables
Assets Current Assets
• Inventories
items to be
resources of a • Operating Equipment
converted to cash or
business that • Prepaid Expenses
used in operations
can be applied • Others
within one year.
to covering
liabilities. • Noncurrent Receivables
• Long-term Investments
(Noncurrent assets)
• Tangible Fixed Assets
assets with a useful life (PP&E)
of over one year and Accumulated Depreciation
the hotel's investing (negative number)
activities • Other Long-term Assets
 LIABILITIES
• Accounts Payable
• Notes Payable
• Current Maturities of
Long-term Debt
Current Liabilities
• Unearned Revenues
obligations that will be • Accrued Expenses
satisfied within one year. • Income Taxes Payable
Liabilities
• Others
arranged on the
balance sheet in
order of how soon • LT Bank Borrowings
Long-term Liabilities
they must be repaid. • Notes Payable
debts repaid more than
• Mortgages Payable
one year from the date
• Bonds Payable
of the balance sheet • Lines of Credit
• Deferred Income Taxes
OWNER’S EQUITY
Stockholders’ Equity
refers to owner (shareholder)
financing of a company.
• Share Capital
+ Common Stock
+ Preferred Stock
• Share Premium (Additional
paid-in-capital)
• Treasury Stock
• Retained Earnings
• Non-controlling interest
 FORMAT OF A BALANCE SHEET

Assets = Liabilities + Owner Equity

 PROBLEM 1
Below are the balance sheets for Melton Corporation for the years
ended December 31, 20X1 and 20X2.
Assets 20X1 20X2 Liabilities and Stockholders’ Equity 20X1 20X2
Cash 433 388 Liabilities:
Marketable securities 101 50 Accounts payable 517 648
Accounts receivable, net 348 430 Income taxes payable 100 150
Inventory 218 283 Dividends payable 300 200
Investments in subsidiaries 595 373 Current portion—LTD 150 200
Property and equipment 2,696 5,998 Long-term debt 920 2,406
Acc. Depreciation (1,000) (1,300) Deferred income taxes (LT) 202 762
Other noncurrent assets 52 1,355 Total liabilities 2,189 4,366
Stockholders’ Equity
Common stock, 193 and 249 shares,
494 642
outstanding, respectively
Additional paid-in capital 0 1,745
Retained earnings 902 935
Treasury shares, at cost (142) (111)
Total stockholders’ equity 1,254 3,211
Total Liabilities and Stockholders’
Total Assets 3,443 7,577 3,443 7,577
Equity
 PROBLEM 1 (cont.)
Additional Information:
1. During 20X2 marketable securities, which cost $X, were sold for $200
resulting in a gain from the sale of $150.
2. Assume $50 of treasury stock was purchased during 20X2.
3. Assume Melton did not retire any of their common stock but sold stock
reflected by the increase in the appropriate accounts.
4. Assume $450 of dividends were declared during 20X2.
 PROBLEM 1 (cont.)
Required: Answer the following questions:
1. What were the total current assets at the beginning of 20X1?
2. What was the total net book value of PP&E at the end of 20X2?
3. What is meant by “net” after accounts receivable?
4. How much treasury stock was sold during 20X2?
5. What was the amount of money raised by selling common stock during
20X2?
6. What was the amount of long-term debt borrowed during 20X2?
7. Assume the increases in common stock and additional paid-in capital
relate solely to the sale of common stock during 20X2. What was the
average selling price per share of common stock?
8. What was the net working capital at the end of 20X2?
9. What dividends were paid during 20X2?
10. What was the net income for 20X2?
 PROBLEM 1 > SOLUTION
1. What were the total current assets at the beginning of 20X1?

2. What was the total net book value of property and equipment at the
end of 20X2?
3. What is meant by “net” after accounts receivable?

4. How much treasury stock was sold during 20X2?

5. What was the amount of money raised by selling common stock during
20X2?
 PROBLEM 1 > SOLUTION
6. What was the amount of long-term debt borrowed during 20X2?

7. What was the average selling price per share of common stock?

8. What was the net working capital at the end of 20X2?

 PROBLEM 1 > SOLUTION
9. What dividends were paid during 20X2?

10. What was the net income for 20X2?

 PROBLEM 2
The balance sheet account balances of the Blue Star Restaurant at the
end of 2020 are as follows (in thousand US dollars):
Accounts payable 140 Land, buildings and equipment 2,200
Accounts receivables 270 Long-term debt 330
Accrued expenses 140 Other current assets 280
Accumulated depreciation 350 Other current liabilities 335
Allowances for bad debt 50 Other long-term liabilities 130
Cash 240 Retained earnings 870
Common stock 450 Share premium 800
Intangible fixed assets 750 Short-term bank loan 565
Inventories 370 Treasury stock 50
Required:
1. Prepare the Blue Star’s balance sheet as of 31 December 2020.
2. Compute the working capital and current ratio of the Blue Star for
2020 and evaluate its liquidity.
 PROBLEM 2 > SOLUTION
1. Prepare the Blue Star’s BS as of 31 Dec 2020.
 PROBLEM 2 > SOLUTION
2. Compute the working capital and current ratio of the Blue Star for
2020 and evaluate its liquidity.
The End